Macroeconomic stability: sustainable development and full employment

Abstract

This paper focuses on some macroeconomic implications of sustainable development. Is it possible within a market economy with private property rights to diminish the ecological pressure through a reduced material production without causing unemployment? It is argued that the obvious solution to the question is a zero-growth policy combined with a labour sharing mechanism which could be organized through a system of tradable work-permits. In a market economy the growth rate is determined by effective demand. Hence, macroeconomic policies play a crucial role. If the growth rate is fixed below the trend in labour productivity the number of unemployed people will increase. Such a development can be prevented through a proportional reduction of the average working hours per person employed. That would require an institutional change which simultaneously reduces the total numbers of hours worked within the macroeconomy. Each member of the labour force could be given work-permits matching a proportional share of the total number of working hours. Trade in these work-permits could be organized as a regular market following the same principles, as we know from e.g. tradable pollution-permits.